TOKYO (Reuters) - Japan is planning to buy up carbon
credits yielded by its investments in emissions-cutting
projects in China, a newspaper said on Thursday.

The two governments agreed the deal on Wednesday and will
formally sign it when President Hu Jintao visits Japan,
probably in late March, the Yomiuri Shimbun said.

Tokyo and Beijing will then select emissions-cutting
projects to be funded by yen-denominated loans, the Yomiuri
said.

A third of the projects funded by such loans since they
began in 1980 have been environment-related, the paper said.

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For example, six projects agreed in the current Japanese
financial year, which ends in March, could generate emissions
reductions equivalent to 10 million to 15 million tons of
carbon dioxide over the next five years, the paper said, citing
a government estimate.

The paper said the price of the credits was not given.

Japan is the only Asian country with an obligation under
the U.N.'s Kyoto Protocol to cut its emissions of greenhouse
gases, but it has been lagging behind its commitment to a 6
percent cut from 1990 levels during the 2008-2012 period.

Tokyo late last year finalized a list of additional
measures to cut roughly 35 to 36 million tons of carbon dioxide
(CO2), mainly by extra voluntary agreements with industries and
more energy conservation.

But it has also been looking abroad for credits generated
under the Kyoto pact's Clean Development Mechanism, which
allows rich polluters to pay for emissions reductions in
developing nations in return for credits to put towards
domestic quotas.

Last December, Japan agreed to buy credits from Hungary,
and officials said it is also in talks with countries,
including Poland, the Czech Republic and Ukraine, on similar
deals.

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(Reporting by Isabel Reynolds; Editing by Emma
Graham-Harrison and David Fogarty)